Posted on 10/11/2011 8:18:53 AM PDT by SeekAndFind
As the Wall Street protests grow and expand beyond New York, growing scrutiny of the nascent movement is warranted. What do these folks want? Alongside their ranting about the inequality of incomes, the alleged inordinate power of Wall Street and large corporations, the high level of unemployment, and the like, one policy goal ranks high with most protesters: the forgiveness of student-loan debt. In an informal survey of over 50 protesters in New York last Tuesday, blogger and equity research analyst David Maris found 93 percent of them advocated student-loan forgiveness. An online petition drive advocating student-loan forgiveness has gathered an impressive number of signatures (over 442,000). This is an issue that resonates with many Americans.
Economist Justin Wolfers recently opined that “this is the worst idea ever.” I think it is actually the second-worst idea ever — the worst was the creation of federally subsidized student loans in the first place. Under current law, when the feds (who have basically taken over the student-loan industry) make a loan, the size of the U.S. budget deficit rises and the government borrows additional funds, very often from foreign investors. We are borrowing from the Chinese to finance school attendance by a predominantly middle-class group of Americans.
But that is the tip of the iceberg: Though the ostensible objective of the loan program is to increase the proportion of adult Americans with college degrees, over 40 percent of those pursuing a bachelor’s degree fail to receive one within six years. And default is a growing problem with student loans.
Further, it’s not clear that college imparts much of value to the average student. The typical college student spends less than 30 hours a week, 32 weeks a year, on all academic matters — class attendance, writing papers, studying for exams, etc. They spend about half as much time on school as their parents spend working. If Richard Arum and Josipa Roksa (authors of Academically Adrift) are even roughly correct, today’s students typically learn little in the way of critical learning or writing skills while in school.
Moreover, the student-loan program has proven an ineffective way to achieve one of its initial aims, a goal also of the Wall Street protesters: increasing economic opportunity for the poor. In 1970, when federal student-loan and -grant programs were in their infancy, about 12 percent of college graduates came from the bottom one-fourth of the income distribution. While people from all social classes are more likely to go to college today, the poor haven’t gained nearly as much ground as the rich have: With the nation awash in nearly a trillion dollars in student-loan debt (more even than credit-card obligations), the proportion of bachelor’s-degree holders coming from the bottom one-fourth of the income distribution has fallen to around 7 percent.
The sins of the loan program are many. Let’s briefly mention just five.
First, artificially low interest rates are set by the federal government — they are fixed by law rather than market forces. Low-interest-rate mortgage loans resulting from loose Fed policies and the government-sponsored enterprises Fannie Mae and Freddie Mac spurred the housing bubble that caused the 2008 financial crisis. Arguably, federal student financial assistance is creating a second bubble in higher education.
Second, loan terms are invariant, with students with poor prospects of graduating and getting good jobs often borrowing at the same interest rates as those with excellent prospects (e.g., electrical-engineering majors at MIT).
Third, the availability of cheap loans has almost certainly contributed to the tuition explosion — college prices are going up even more than health-care prices.
Fourth, at present the loans are made by a monopoly provider, the same one that gave us such similar inefficient and costly monopolistic behemoths as the U.S. Postal Service.
Fifth, the student-loan and associated Pell Grant programs spawned the notorious FAFSA form that requires families to reveal all sorts of financial information — information that colleges use to engage in ruthless price discrimination via tuition discounting, charging wildly different amounts to students depending on how much their parents can afford to pay. It’s a soak-the-rich scheme on steroids.
Still, for good or ill, we have this unfortunate program. Wouldn’t loan forgiveness provide some stimulus to a moribund economy? The Wall Street protesters argue that if debt-burdened young persons were free of this albatross, they would start spending more on goods and services, stimulating employment. Yet we demonstrated with stimulus packages in 2008 and 2009 (not to mention the 1930s, Japan in the 1990s, etc.) that giving people more money to spend will not bring recovery. But even if it did, why should we give a break to this particular group of individuals, who disproportionately come from prosperous families to begin with? Why give them assistance while those who have dutifully repaid their loans get none? An arguably more equitable and efficient method of stimulus would be to drop dollars out of airplanes over low-income areas.
Moreover, this idea has ominous implications for the macro economy. Who would take the loss from the unanticipated non-repayment of a trillion dollars? If private financial institutions are liable for some of it, it could kill them, triggering another financial crisis. If the federal government shoulders the entire burden, we are adding a trillion or so more dollars in liabilities to a government already grievously overextended (upwards of $100 trillion in liabilities counting Medicare, Social Security, and the national debt), almost certainly leading to more debt downgrades, which could trigger investor panic. This idea is breathtaking in terms of its naïveté and stupidity.
The demonstrators say that selfish plutocrats are ruining our economy and creating an unjust society. Rather, a group of predominantly rather spoiled and coddled young persons, long favored and subsidized by the American taxpayer, are complaining that society has not given them enough — they want the taxpayer to foot the bill for their years of limited learning and heavy partying while in college. Hopefully, this burst of dimwittery should not pass muster even in our often dysfunctional Congress.
— Richard Vedder directs the Center for College Affordability and Productivity, is an adjunct scholar at the American Enterprise Institute, and teaches at Ohio University
Once all those outstanding student loans are “forgiven” (by who?) the unintended consequences are going to be a bear.
All students will expect free college.
After all that time college liberals have spent, building ever-escalating tuition costs to pay for their tenure-protected social engineering political jobs.
Liberal rock. Meet liberal hard space.
I agree, we should remove all taxpayer money from colleges. Those who can afford the tuition will attend and those who can’t afford it won’t or they’ll find a way to pay.
If philanthropists and corporations want to offer scholarships to top students, more power to them.
I paid mine back one payment at a time while very underemployed too. But... I wasn’t stupid enough to borrow $75K either.
We have seen this in London and other socialist countries, too. It’s all a ploy of the community organizers to keep the unemployed, non-tax paying students involved along with the government union workers.
Gi’me, Gi’me, Gi’me!
A lot of unemployed college graduates goin on out thar.
” it shouldn’t be harder to discharge a student loan than it is to discharge unpaid federal income taxes.”
What country do you live in? Bankruptcy never discharges taxes. The bankruptcy laws are very clear on that.
The IRS will get their money bankrupt or not.
Ah yes... the gimme gimme gimme crowd. Unfortunately, they are everywhere in America, from the “give me free education” class, to those who don’t give a damn that social security is going to bankrupt this country.
NO! I was not able for financial reasons to go to school and I will be d@mned if I will pay with my tax dollars for those in the streets to get a free education.
My biggest complaint is that these loans are used for living expenses...no kidding. It becomes a big low interest credit card.
The wife of a co-worker is currently in school. She's in her early 40’s...she's been down several degree paths, but not finished. She finally got one degree, and is now pursuing a master's degree in that field. Literally, she has been in school her entire adult life.
The tab: around $200k (one thing I've noticed with people who hold student loans - they never know exactly and always give round numbers).
She recently couldn't find a class to take in the summer....so they lived partially off of credit cards, since his income alone won't cut it.
There seems to be no limit to 1) what the loans are spent on, 2) the total amount loaned 3) the absurdity of the possibility of re-payment (lets just say she is not studying to be a medical doctor).
$200k! Do I ever want this to be forgiven? Nope. This co-worker currently drives a nicer car than me, wears nicer clothing, goes out to eat constantly, etc. We are subsidizing this lifestyle. I doubt we will ever see any of this money back; but, on the off chance this woman is ever able to acquire assets, I want them going back to the lender (us) in probate.
I dated a sociology professor once. Her students got credit for protesting.
All the college credit with no actual basket weaving required.
NO I disagree you borrowed that money you pay it back no matter what.Sorry but especially now that it is my tax dollars at stake no one should ever be able to discharge a student loan and if it were up to me it would also follow heirs for repayment.
Irresponsible leftists pay for nothing in life. Responsible conservatives are forced to pay for everything.
I worked through college, too. Paid the rest due with some supplemental loans.
Of course, college costs about 4x more now at my alma mater now than it did then. The days of working during the summer & paying for college is long gone.
Never say never. There are many instances where taxes are forgiven. Read up.
But more to the point, a debtor can negotiate to lower a tax debt. I have never heard of one successfully negotiating to lower school loan debt.
If one can discharge medical/health debt, there is no rational argument for not including school loans in dischargeable bankruptcy debt.
That's the one thing I am sure will NEVER happen, because it was intended to be a means for the government to turn young people into indentured slaves. The dirty little secret is that most "financial aid" comes from overcharging non-minorities and using the excess to fund "financial aid" to Eric Holder's people.
An intended consequence of this is that non-Eric Holder's people bury themselves in student loans that are now owned by the federal government.
Get this: student loans are the ONLY debt you cannot escape through personal bankruptcy.
This means that the vast majority of kids graduating from college these days are indentured slaves to the federal government.
If you don't think Washington has plans to exploit this situation, you must be from some other planet.
This is bigger than people paying their bills, people. This is a Marxist takeover.
Wake UP!!
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